SMIC/Tudor Brown: east-west tech tensions point NED to the exit

The news that a non-executive director is stepping down after nine years is typically greeted with snores. However the departure of Tudor Brown reflects worsening east-west tech tensions.

Brown, a founding engineer of chip designer Arm, is quitting the board of China’s largest chipmaker, Semiconductor Manufacturing International Corp. One parting sally was: “The international divide has further widened.”

Chinese chipmakers face growing pressure from both the US and at home. Tightening US export restrictions on SMIC may also make Brown’s experience less useful.

Arm’s business is not fully free from US export restrictions despite being a UK company because its ubiquitous designs contain “US origin technology”. Arm designs are used in 90 per cent of the world’s mobile processors. It stopped licensing its technology to Huawei in 2019.

SMIC has done the most of any Chinese group to advance Chinese chip technology. But although design capabilities have improved impressively, the production process is far from self-sufficient. Local makers continue to rely on imported chipmaking equipment.

US chip gear makers Lam Research, Applied Materials and KLA Corp are key suppliers to SMIC. The US has already banned sales to SMIC of equipment that can make advanced chips.

Washington is broadening the ban to less advanced chips as well. That would directly threaten a key target for China: mass-producing 14nm chips by next year. These processors are many levels less advanced than those made by global peers such as TSMC of Taiwan, but a big step up for Chinese manufacturers.

SMIC shares have fallen more than 30 per cent in the past year. This week, Chinese regulators announced a slew of chip-related investigations. Their previous warmth towards the sector is cooling.

Beijing has for years been generous with handouts, allocating more than $100bn to local chipmakers. The backdrop to regulatory probes is the suspicion that manufacturers and designers may have overstated advances in chip technology to please politicians.

China is hardly likely to put the brakes on its push to reduce dependence on foreign chip technology of the kind produced by Arm. But SMIC and its peers can expect far tougher scrutiny of their progress.